Hermes Equity Ownership Services Limited 150 Cheapside, London EC2V 6ET .
Hermes Equity Ownership Services Limited150 Cheapside, London EC2V 6ETUnited Kingdom 44 (0)20 7702 0888Phonewww.FederatedHermes.comDear Sir/MadamEOS at Federated Hermes is a leading stewardship provider, advising on 938bn1 of assets (as of 30September 2020), on behalf of global international institutional investors. Federated Hermes is a globalleader in active, responsible investing with 476.4bn2in assets under management (as of 30 September2020). Our goals are to help people retire and invest better, to help clients achieve better risk-adjustedreturns, and to contribute to positive outcomes that benefit the wider world.EOS UK Corporate Governance Principles 2021Enclosed is a copy of our 2021 UK Corporate Governance Principles. This document expresses ourexpectations of companies across a number of important strategic, governance, environmental andsocial topics and guides our approach to our corporate engagement programme, as well as ourapproach to recommending votes at shareholder meetings. We seek to take an engagement-ledapproach on voting where practicable and to take account of company circumstances when makingvote recommendations. Our voting policies reflect the importance of long-term issues such as boardeffectiveness, climate change and diversity. However, when making voting recommendations on theelection of directors, particularly board and committee chairs, we will continue to consider theimportance of consistent leadership for companies facing acute distress caused by the ongoingCoronavirus pandemic.We would like to emphasise the following points:Company purposeCompanies should be guided by a purpose that serves not only shareholders, but also otherstakeholders, society and the environment. This is particularly important in times of crisis, such as thatcaused by the coronavirus pandemic in 2020, when difficult trade-offs may be required.Diversity and inclusionWe support the aspiration that all levels of management and the wider workforce should broadly reflectthe diversity of society and believe boards should seek diversity in its broadest sense to support highquality debate and decision making. Many companies still fall far short of gender equality, while thedeath of George Floyd in the US has re-energised the anti-racist movement in the US and around theworld and renewed concerns about poor representation of ethnic minorities in business, particularly insenior positions. In 2021, we will continue to recommend voting against resolutions at companies thatwe judge to be making insufficient progress on diversity and inclusion, including:Gender diversity The target year for achieving the minimum expectation recommended by the Hampton-AlexanderReview of 33% female representation on FTSE 350 boards was 2020. In 2021, we will considerrecommending voting against the chair of the nominations committee or board of any FTSE 350company which falls below this level, or of a company outside the FTSE 350 with no women on theboard.1Source: Federated Hermes as at 30 September 2020.Please note the total AUM figure includes 6.2bn of assets managed or under an advisory agreement by Hermes GPE LLP (“HGPE”). 54.1m of total group AUM figure represents HFM mandates under advice. Source: Federated Hermes as at 30 September 2020.2Hermes Equity Ownership Services Limited. Registered office: Sixth Floor, 150 Cheapside, London EC2V 6ETCompany registered in England and Wales, No. 5167179.
We will continue our policy of generally recommending voting against the chair of any FTSE 100company with an all-male executive committee and will extend this to consider recommendingvoting against the chair of any FTSE 100 company with materially less than 20% femalerepresentation in the combined population of the executive committee and its direct reports3.Improving the representation of women should not be considered in isolation from otherdimensions of diversity and, particularly, ethnic diversity. We welcome the integration of targets forrepresentation of women and people from ethnic minority backgrounds by The 30% Club in theUK4, for example, that boards should include at least one person from an ethnic minoritybackground, and that half of these board seats should go to ethnic minority women.Ethnic diversity We have communicated our support for the recommendations of the Parker Review5 for severalyears, including the minimum expectations that FTSE 100 boards have at least one director from anethnic minority background by 2021 and FTSE 250 boards have the same by 2024. In 2021, we arelikely to recommend voting against the chair of the board of any FTSE 100 company that does nothave at least one director from an ethnic minority background6 and has no credible plan to rapidlyachieve this. We are likely to recommend voting against the chair of any FTSE 100 company that did not discloseinformation to the Parker Review report7 and does not make a firm commitment to do so in future.Climate changeThe breakdown of the climate is a systemic risk to the value of our clients’ portfolios, due to theeconomic and political consequences, as well as the physical impacts of climate change. We expect asstandard annual reporting using the guidelines of the Taskforce on Climate-related Financial Disclosures.We will consider recommending voting against the chair of the board or other responsible directors ofcompanies which we do not believe to have demonstrated sufficient management of climate-relatedrisks, such as those below a Level 4 management rating from the Transition Pathway Initiative,8 orwhere a company’s strategy is materially misaligned with the goals of the Paris Agreement.Executive remunerationThe limitations of pay schemes reliant on performance-based incentives schemes have been highlightedby the pandemic, as share price volatility and limited visibility meant boards in most industries havestruggled to set meaningful targets. Meanwhile the ensuing rally in markets may lead to undeservedwindfall gains for executives from shares-based incentive schemes. As the impacts of the pandemiccontinue, we expect boards to use their judgement to ensure executive pay can be justified in thecontext of the experience of other stakeholders, particularly for companies that have maderedundancies, made use of government support including to furlough employees, or those that areotherwise in distress.3We will assess this based on the 2020 Hampton-Alexander report, due to be published February 2021. For companies with AGMs beforethis time, we will use the 2019 report: 19/11/HA-Review-Report-2019.pdf. We willseek to clarify this data in our research into and engagements with companies where practicable.4 thnic-diversity-of-uk-boards-the-parker-review6 We will assess this using data disclosed to the Parker Review and verify in our research of and engagements with companies wherepracticable en .pdf7 en .pdf8 lkit/Hermes Equity Ownership Services Limited. Registered office: Sixth Floor, 150 Cheapside, London EC2V 6ETCompany registered in England and Wales, No. 5167179.
We continue to make the case for switching to simpler pay schemes aligned to long-term success andthe desired culture in the organisation, with an emphasis on long-term share ownership for executives.We do not believe the UK standard model of salary, bonus and long-term incentive plan best achievesthis, and our voting policy guidelines seek to improve market practice and encourage closer alignmentwith our principles.In 2021, these include: Executive shareholdings: We want to see minimum shareholding requirements increase to 500% ofsalary for a FTSE 100 company, 300% for a FTSE 250 company and 200% for all other companies.We will now generally not support policies which fall below 400% (FTSE 100) or 300% (FTSE 250).We expect post-cessation shareholding requirements to be set, as a minimum, at 100% of minimumshareholding requirements for two years post-departure, although we are open to alternative andequivalently effective structures. Fixed to variable pay opportunity: Our guideline is that a ratio of more than four times base salary isconcerning, and more than six times is unlikely to gain our support without a compellingjustification. Alignment of performance metrics to strategy: Where performance measures are used in variablepay schemes, they should be aligned to building a long-term sustainable business, rather than totalshareholder return (TSR). We will generally oppose schemes which use TSR, whether relative orabsolute, as their dominant metric.We welcome any comments and observations on our 2021 Corporate Governance Principles and wouldwelcome the opportunity to answer any queries or concerns that may raise.Yours sincerelyAmy WilsonEngagement, EOS at Federated Hermes 44(0)207 680 4679Amy.wilson@hermes-investment.comHermes Equity Ownership Services Limited. Registered office: Sixth Floor, 150 Cheapside, London EC2V 6ETCompany registered in England and Wales, No. 5167179.
CorporateGovernancePrinciplesUnited KingdomOur expectations ofUK-listed companiesEOS at Federated Hermes2021www.hermes-investment.comFor professional investors only
IntroductionEOS at Federated Hermes represents a broad range of long-term investors, who seekto be active stewards and owners of their beneficiaries’ assets, including the shares ordebt of the companies in which they invest. EOS engages with these companiesaround the world to promote long-term, sustainable returns. These Principles expressour expectations of companies across a number of important strategic, governance,environmental and social topics. More detail on our expectations, particularly onenvironmental and social topics, can be found in our public, annually updatedEngagement Plan1.Stewardship and engagementInvestors must also act as responsible stewards and promote long-term value throughconstructive engagement with companies and their directors. All substantivecorrespondence from institutional investors should be shared promptly with all boardmembers to help directors fulfil their role to safeguard the interests of allshareholders. Our experience has shown that dialogue between companies andcommitted, long-term investors on strategy, finance, risk management and materialenvironmental, social and governance (ESG) issues can improve the governance,performance and value of companies. Developing relationships of trust with long-termshareholders can be invaluable for boards, and we expect chairs and independentdirectors to make themselves available for engagement, beyond opportunities atformal shareholder meetings.We expect companies to engage with long-term investors across a range of assetclasses, including different types of corporate debt, in addition to their shareholders.Companies should now recognise that debt investor expectations have similarlyaligned expectations to long-term shareholders in relation to governance, long-termstrategy, capital allocation and environmental and social matters. Debt investors nowexpect accountability and constructive dialogue on opportunities and risks which mightenhance or impair earnings or cashflow.At EOS, our model is to provide stewardship on behalf of a collective of investors –mainly pension funds and other long-term, institutional investors from around theworld. We engage with investee companies on matters material to long-term value,encompassing environmental, social, governance and strategic topics, and makevoting recommendations on resolutions at shareholder meetings. This collective modelaims to make the engagement process more efficient and effective, for companies andinvestors, by pooling resources and assets. We also aim to reduce potential conflictsof interest through a collective focus on long-term, sustainable value, shaped withinput and agreement from our clients.Company purpose and leadership1The latest public version of the EOS Engagement Plan can be found at: www.hermes-investment.com/stewardship/eos-library2
EOS Corporate Governance PrinciplesUK2021It is our strong belief that companies can only create and preserve long-term value forinvestors if they provide goods and services that sustainably solve societal needs.To achieve this, we expect companies to be guided by a purpose that serves not onlyshareholders, but also other stakeholders, society and the environment. This helpsprotect the long-term interests of the savers and pensioners – current and future –invested in companies, who require sustainable financial returns and an economy,society and environment which can provide a secure future.A clear and meaningful business purpose should enable business leaders to identifythe right things to do in the short term, in order to fulfil their purpose over the longterm. This is critical in a time of crisis – such as that caused by the coronaviruspandemic in 2020 – when difficult trade-offs may be required, particularly betweenshorter-term financial returns and maintaining strong relationships with keystakeholders, including government, the workforce, customers and supply chains2.Companies need to be able to rationalise and explain their decisions affecting keystakeholders. This includes the most difficult decisions, such as redundancies, but alsohow they allocate capital, including dividend payments and share buybacks.We expect boards to consider capital allocation in the context of a company’s purposeand long-term strategy. We are concerned that buybacks may be chosen to improvethe share price or other related metrics over the short term but are not always thebest use of capital to support the creation of long-term, sustainable value.Endorsement of the UK Corporate Governance CodeWe endorse the principles and provisions of the UK Corporate Governance Code (theCode), as well as its associated guidance, and expect companies to providemeaningful reporting on how they apply it. We recognise that good governance cannotbe guaranteed by adherence to the provisions of the Code. We therefore urgecompanies to consider carefully how best to apply the principles and the spirit of theCode to their own circumstances and clearly communicate to shareholders therationale behind their chosen approach.We believe that smaller listed companies – those outside the FTSE 350 Index – shouldcomply with the Code in full, expect where it makes allowances for smaller companies,or explain the reasons for non-compliance. The Quoted Companies Alliance’sCorporate Governance Guidelines for Smaller Quoted Companies provide good advicefor companies outside the FTSE 350, including AIM-quoted businesses, on how todevelop and manage their governance commensurate with their stage ofdevelopment. The Guidelines may also help companies to provide explanations whentheir arrangements differ from the Code’s recommendations.Board effectiveness and composition2We expand on our expectations of companies in responding to coronavirus in more detail in our open letter to /
Boards should ensure they comprise members with strong and diverse skills,experience, perspectives and psychological attributes, as well as sufficientindependence and strength of character to challenge, as well as advise and supportexecutive management teams. They should ensure membership of the board isfrequently reviewed and refreshed, and that directors are elected and re-elected byshareholders on a regular basis to ensure accountability. Biographies for all directorsshould be provided to shareholders, indicating which are considered independent andthe value that they bring to the board. This should be accompanied by an analysis ofhow the board as a whole displays the necessary skills, independence, diversity andother attributes to meet the company’s evolving needs.Independence and tenureOn all boards, we expect a strong core of independent directors, including anappointed lead independent director, to ensure that all stakeholder interests areprotected, to exercise objective judgement and, if necessary, to act as agents forchange. This group should play an import role in guiding the boards’ decision-makingand in the recruitment of directors. It should be empowered to meet independently,including before and after board meetings, and should do so in practice. It should begranted unfettered access to members of management, information and resources asrequired.Ensuring sufficient levels of independence is particularly important for founder-ledcompanies, those with executive chairs, significant shareholder representatives on theboard (which we believe can be useful and justified, provided minority shareholderinterests are protected) or strong management representation on the board. Weexpect at least half of the board directors to be independent in companies with adispersed ownership structure, and at least one third to be independent in controlledcompanies. In their disclosures, companies should clearly state which directors theyconsider to be independent and the criteria for determining this.We consider the overall composition of boards and recognise the value that longserving directors can contribute. However, too many directors serving concurrentlycan increase the risk of groupthink and complacency. We expect a healthy mixture oftenures on boards, including regular board refreshments.Director attendance and commitmentWe expect board directors to be able to devote sufficient time to fulfil their duties,including to build and maintain a good understanding of the company and to fullyabsorb and be able to challenge the information presented to them by management.As a broad guideline, we do not support directors holding more than five directorshipsat public companies and in this context, we consider a non-executive chair role to beroughly equivalent to two directorships.Whether a director may be over-committed depends on a range of factors beyond thenumber of other roles they hold, including the size and complexity of the companyand additional responsibilities, such as being a committee chair. We consider thatcertain industries such as banking (due to its business model and regulatory4
EOS Corporate Governance PrinciplesUK2021complexity) and multi-site operating companies such as international mining (due tothe need for site visits) require more time commitment.We expect companies to encourage their executives to take on non-executive rolesoutside their own group companies to assist in their development, bring currentexperience to boards and to build a pipeline of future board directors. However, we donot expect executives to hold more than one non-executive role.EffectivenessMeasurable aspects of boards, such as those outlined above, are important butinsufficient indicators of a board’s functionality. While we welcome improvements todisclosure of these around the world, ticking all the good governance boxes does notnecessarily translate into good governance, as demonstrated by continuing large-scalecorporate failures.Engagement between investors and board directors provides a valuable opportunity tomore deeply assess how well a board is functioning. Our white paper, GuidingPrinciples for an Effective Board3 highlights the factors that we consider to be mostimportant in determining board effectiveness, focusing on the human, relational, andbehavioural elements that are more difficult to assess.Succession planningEffective succession planning at board and senior management level is essential forsafeguarding the ability of companies to deliver long-term returns. It should involvecontingency planning for the sudden loss of key personnel, as well as planning forforeseeable change such as impending retirement. It should include consideration ofthe diversity of skills, experience and other attributes required at board and seniormanagement level.Overseen by the board, senior management should create a pipeline of suitablecandidates from within the organisation to become senior managers and executivedirectors.Diversity and inclusionAs well as the intuitive, social case that companies should embrace diversity andrealise its benefits through inclusive cultures, there is a growing body of evidencesupporting the link between more diverse company leadership and financialperformance4, including a 2020 study from McKinsey which found that companies withexecutive teams ranking in the top quartile for ethnic diversity were 36% more likelyto have above-market profitability than their less-diverse peers. McKinsey also ive-board-april-2020.pdfFor example, the 30% Club has compiled a list of studies examining the benefits of gender estor-group
that companies that already saw diversity and inclusion as a strength were likely toleverage this to bounce back from the pandemic more quickly5.Boards should seek diversity in its broadest sense to support high-quality debate anddecision-making. Considering diversity of skills, experience, networks, psychologicalattributes and demographics (including gender, ethnicity, nationality, sexualorientation and age) will equip the board to effectively serve the company and itsstakeholders.Diverse perspectives throughout an organisation are also likely to more accuratelyreflect employees, customers, and suppliers across the company’s geographicfootprint. As such, we support the aspiration all levels of management and the widerworkforce, should broadly reflect the diversity of society, including in the company’score functions, such as operations and sales.We expect boards and management teams to monitor key indicators to assess thecomposition of the workforce and how the company’s culture supports inclusivity.Where diversity is found to be lacking – for example, the under-representation ofwomen or ethnic minorities in the workforce or leadership positions – we expectcompanies to develop timebound targets and initiatives to address it. We expect themto carefully consider how these targets and initiatives can take into account theconvergence of different dimensions of diversity and support those facing combinedchallenges, for example, the promotion of women of colour to leadership roles.Racial inequityThe death of George Floyd while in police custody in the US ignited an anti-racism6movement that spread quickly around the world, renewing concerns about poorrepresentation of ethnic minorities in business, particularly in senior positions, and therole that companies may play in perpetuating racial inequity7 in their workforces andin society, through their products, services and customer practices and their publicpolicy and other societal actions8.We welcome the steps taken by companies around the world, including in the UK, toacknowledge and commit to addressing racial inequity, in the workforce and beyond,but we expect this to be followed up with concrete action.We believe many companies, including our own, have much more to do to addressthis urgent problem. We seek to learn from those companies that are taking a lead.But even those leading companies are only beginning to address the problem. n-matters6In contrast to racism (‘The belief that race is the primary determinant of human traits and capacities and that racial differences producean inherent superiority of a particular race’ ]), anti-racism is defined as ‘The ideathat racial groups are equals and none needs developing’ and ‘Supporting policy that reduces racial inequalities’ [Ibram X. Kendi, 2019]7Racial inequity or inequality is defined as ‘When two or more racial groups are not standing on approximately equal footing’ For example,the percentage living in owner-occupied homes [Ibram X. Kendi, 2019]8For example: products, services or practices that intentionally or unintentionally create or sustain racial inequity, perpetuate raciststereotypes or group supremacy; lobbying and political donations, support for community organisations, etc.6
EOS Corporate Governance PrinciplesUK2021which, like us, are only beginning or accelerating the journey must do so withoutfurther delay.As a start, we expect companies to:1. Publish a statement internally and to external stakeholders that acknowledgesand condemns racism and racial inequity in society, and which acknowledgesany inequity within the company, such as under-representation of minorities inleadership.2. Commit to a thorough review of the company’s actions to date to identify whereit may be perpetuating racial inequity and where there are opportunities tomake a positive contribution to racial equity. This should include the company’sculture and workforce; products, services and customer practices; actions withsuppliers; and contributions to public policy and other societal actions. Toinform this assessment, seek and act on feedback from employees, customers,suppliers and other stakeholders, including independent external experts.3. Make public commitments to address urgently racial inequities within theworkforce and other challenges and opportunities identified, including settingtime-bound targets. This should be set in the context of actions taken on otherunderrepresented groups, acknowledging the important combined challengesfaced, for example, by women of colour.4. Start collecting, as a minimum, data on the ethnic composition of the workforceby seniority. At least annually, publish these and other relevant data, includingpay gaps/ratios, with a narrative explanation of what the figures mean and abrief, timebound, action plan to address shortfalls. Data should be usedinternally to prompt further investigations so that underlying drivers can beunderstood and acted on.We support the Parker Review recommendations, including the minimum expectationsthat FTSE 100 boards have at least one director from an ethnic minority backgroundby 2021 and FTSE 250 boards have the same by 2024.Given the importance of this issue and the number of years that these minimumexpectations have been in place, in 2021 we will: Consider recommending voting against the chair of the nominations committeeor board of any FTSE 100 company that does not have at least one directorfrom an ethnic minority9 and has no credible plan to rapidly achieve this. Consider recommending voting against the chair of the nominations committeeor board of any FTSE 100 company that did not disclose information to theParker Review report10 and does not make a firm commitment to do so infuture.9We will assess this using data disclosed to the Parker Review and verify in our research of and engagements with companies wherepracticable en y-com/en .pdf
Gender equalityAdvancing gender equality in company leadership and throughout organisations alsoremains critically important, with many companies around the world still falling farshort of equal representation. We continue our global support for initiatives like The30% Club, which advocate for companies to achieve a minimum of 30% femalerepresentation on boards and in leadership populations.We strongly support the goals of the Davies and Hampton-Alexander reviews that, by2020, at least 33% of FTSE 350 board members are female, along with at least 33%of FTSE 100 executive committees and their direct reports.This topic has been a focus for companies and investors for a number of years, andthe target year for meeting the Hampton-Alexander expectations was 2020. As such,we expect FTSE 350 companies to already have achieved a minimum of 30% femalerepresentation on their boards. In 2021, we will: Generally, recommend voting against the chair of the nominations committee ofany FTSE 350 company which falls below 33% female representation on theboard. Generally, recommend voting against the board chair or chair of thenominations committee of companies outside the FTSE 350 which do not haveany female board members.Gender diversity below the board is equally important. While many companies havebeen working hard to improve the gender balance of their leadership teams, too manycontinue to fall short of the minimum standard for 2020 recommended by theHampton-Alexander review. As such, in 2021, we will: Generally, recommend voting against the chair of any FTSE 100 company withan all-male executive committee. This policy seeks to address clear laggards;we expect most companies to be significantly further along the journey togender parity in leadership. Consider recommending voting against the chair of any FTSE 100 company withmaterially less than 20% female representation in the combined population ofthe executive committee and its direct reports11.Improving the representation of women should not be considered in isolation fromother dimensions of diversity and, particularly, ethnic diversity. We welcome theintegration of targets for representation of people of colour and for women by The30% Club in the UK12 for example, that boards should include at least one person ofcolour and that half of these board seats should go to women of colour.11We will assess this based on the 2020 Hampton-Alexander report, due to be published February 2021. For companies with AGMs beforethis time,
Hermes Equity Ownership Services Limited. Registered office: Sixth Floor, 150 Cheapside, London EC2V 6ET Company registered in England and Wales, No. 5167179. Dear Sir/Madam EOS at Federated Hermes is a leading stewardship provider, advising on 938bn1 of assets (as of 30 September 2020), on behalf of global international institutional investors.
2 Tomlinson, rian and Milano, Gregory Vincent and Yiğit, Alexa and Whately, Riley, The Return on Purpose: efore and during a crisis (October 21, 2020). 3 SEC.gov The Importance of Disclosure –For Investors, Markets and Our Fight Against COVID-19 Hermes Equity Ownership Services Limited 150 Cheapside, London EC2V 6ET United Kingdom 44 (0)20 7702 0888 Phone www.FederatedHermes.com . Hermes .
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Apr 27, 2012 · Plaintiffs Hermes International and Hermes of Paris, Inc. (collectively, "Hermes" or "Plaintiffs") commenced this action on March 6, 2012, and simultaneously moved ex parte for a Temporary Restraining Order, Seizure Order, Asset Restraining Order, Domain Name Transfer
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